Election funds, minimum wage review to change inflation curve in Q2

The impending release of election funds, budget passage in May and the minimum wage review are seen feeding into prices, which would change the current inflation curve, according to analysts.

They say the demand-pull effect of increased liquidity could exacerbate inflationary pressure despite headline inflation (year-on-year) declining for the 14th consecutive month to 13.34 percent in March.

Analysts at Financial Derivative Company, a Lagos-based financial research firm say the higher monthly inflation recorded in March indicates impending inflection in the inflation curve.

“The increase in month-on-month (m-o-m) inflation could be an inflection point to the downward inflation trend,” they said, adding that the significant decline in inflation in recent months could be attributed mainly to the base year effect.

Headline inflation (year-on-year) declined for the 14th consecutive month to 13.34 percent in March, representing the 3rd lowest rate since inflation crossed 10 percent in February 2016.

“The slope of the inflation curve was steeper in March at 0.99% compared to 0.80% in February. Cumulatively, the decline in inflation is 1.79%.

The significant decline in inflation can be attributed mainly to the base year effect,” the analysts noted.

According to the NBS inflation figures, all sub-indices moved in tandem with the headline rate, except month-on-month inflation, which increased slightly to 0.84 percent (10.5% annualized) from 0.79 percent (9.93% annualized) in February. The increase in m-o-m inflation in March was adduced to increased spending during the Easter period and the start of the planting season.

Food inflation (year-on-year) eased to 16.08 percent in March from 17.59 percent in February. Core inflation, also continued its downward trend easing to 11.2 percent from 11.7 percent in February.

The core inflation rate is currently below the primary and secondary market T/ bills rates of 11.75 percent and 12.76 percent respectively, implying a positive real rate inflation.

Ahead of the next MPC meeting likely to hold on May 22/23, FDC notes that most investors will be keenly watching the economic calendar before the crucial meeting since in the monthly inflation data for April will be released as well as the publication of GDP for Q1’18.

“If inflation remains flat or declines further and GDP growth increases mildly, the probability of a shift towards an accommodative stance becomes more likely,” they pointed out.